Revolutionary Wealth

In that ground-breaking book, the Tofflers impressively sketched the broad outlines of the information economy, now an established fact. They foresaw the rise of companies that produced nothing tangible yet generated significant wealth. Ever heard of Google, now worth 15 times more than General Motors, the world's leading automaker? Of course, no soothsayer can be expected to be right every time, and the Tofflers made their share of howlers. They thought our clothes would be disposable now, for example. And despite the Toffler's hand-wringing, our psyches have proven as durable as our blue jeans. Sure, watching the Internet rise up from nowhere to everywhere was jarring, but few psychiatrists report an epidemic in cases of "future shock."

Despite this, the book has been hugely influential, with over fifteen million copies now in circulation in more than 50 countries, spreading the Tofflers' ideas about what tomorrow will bring.

In the years since their landmark book, socioeconomic change has indeed been rapid. But the Tofflers have maintained a steady, deliberate pace, producing a book every ten years or so. And they've honed their analysis. The anxiety on display in their first book has given way to a measured optimism. No longer fixated on the possible shocks that lie ahead, the Tofflers are thinking more about the wealth that beckons.

Who might be interested in the message of their latest book? High-level corporate strategists, for one. The Tofflers have, after all, proven their ability to identify long-range trends. But really, anyone with a stake in the future and an interest in wealth will want to know what these keen minds are up to.

So listen up and learn why there really is such a thing as a free lunch – and it might be coming out of your pocket; why the most valuable property in the coming decades might well be intellectual; and why the future may belong to those who can manipulate very small things.

As you might expect of writers who make their living through prophesy, the Tofflers paint with a broad brush. They look at the horizon, attempting to sketch out the big picture, and are careful not to get bogged down too often in messy details. And while their gaze is usually forward, they also occasionally crane their necks backward, picking up developing trends and then tracing their path outward into the future.

The book is divided into ten parts, each containing several chapters. The first one is called, bluntly and simply, "revolution," echoing the name of the book. This section portrays a world in rapid flux. The authors go so far as to predict that some of the information they present "will be obsolete by the time you read" it.

The Tofflers demystify the idea of the New Economy, which gained currency during the dot-com boom of the late 90s. The concept arose seemingly out of nowhere to explain why companies with few tangible assets and no profits were drawing billions in investor cash. When the dot-com bubble burst, many commentators declared the "new economy" a hoax – a marketing tool to sell worthless stocks.

Nonsense, say the authors. If, by "new economy," people meant the rise of information and knowledge as valuable assets, then the concept isn't really new at all – and is much more durable than doubters think. The Tofflers trace the new economy's roots back to 1956 – the year when service workers began to outnumber industrial laborers in the United States. At that point, your brain power, not your muscle power or physical skill, became the chief determining factor of economic success. This new economy took a quiet but giant step forward in the late 1960s, when popular media attention was focused on youth upheaval. While the cameras zoomed in on hippies and their protests, government researchers quietly collaborated on creating a telecoms-based way for their computers to communicate.

Their work would eventually give rise to the Internet.

The dot-com bubble may have burst as the millennium turned, but the Internet continues to grow apace – as does the economic power of so-called knowledge workers. As the authors put it, "given this history, the common belief that the 'new' economy was the product of the 1990s stock-market bubble, and that it was going away, is ridiculous."

Indeed, they say, the changes wrought by the shift to a knowledge economy have yet to be fully felt. Scientists worldwide have access to information technology undreamed of even a decade ago. The pace of change so dramatic in the last decade looks set to ramp up.

In the next section, the authors introduce the concept of "deep fundamentals." By that, they mean the major social and historical currents that propel us forward. They contrast "deep fundamentals" with what they see as the superficial jargon employed by the media. For the authors, stock-market chatter about the "fundamentals" that make stocks go up and down from one minute to the next has no real meaning. When business journalists speak of "fundamentals," they typically refer to periodic economic measures like inflation, the gyrations of quarterly profit reports, the latest pronouncements from the US Federal Reserve. For the authors, these isolated bits of information amount to surface-level indicators of change that's already happened. They reveal little that's fundamental to the revolutionary changes on the way.

To expand their point, the authors lay out the theory of history they presented in a previous book, The Third Wave. The first great wave of human history was agriculture. Some 10,000 years ago, a "pre-historic Einstein" planted a seed and harvested the fruit of the resulting plant. That great innovation freed humans from a nomadic existence and allowed them to stay put. As agriculture became more productive, food surpluses began to build, freeing some people from toil and allowing them time to think about other things.

Thus, with the advent of agriculture, everything changed. From the ability to grow and store food came the written word, division of labor, art, poetry, and generally, civilization. By today's standards, the agriculture revolution was a slow one. It took thousands of years to spread throughout the world – and indeed, some parts of the globe remained uninfluenced by the great first wave of human history well into the last century.

In the nineteenth century, there arrived a second great wave: industrialism, the harnessing and leveraging of mechanical power with machines that delivered the power of hundreds or thousands of horses.

The second wave gave rise to factories, and launched the great industrial fortunes that curtailed the power of the old landed elite. Industrialism led to revolutions in transportation and communication, leading to the rise of consumer culture.

You heard earlier that the year 1956 marked the year that knowledge workers began to outnumber service workers in the US economy. That, for the authors, marked the first great burst of the third wave – the rise of knowledge as a key economic currency, and ideas as valuable capital. While the first wave took thousands of years to conquer the globe, and the second took more than a century, the third wave is working its wonders in a matter of decades. The third wave substitutes knowledge for the traditional factors of industrial and agrarian production – land, labor, and tangible capital.

For the authors, "deep fundamentals" are the hidden forces that drive these changes and determine how they play out on the stage of human history. And it's precisely these fundamentals, and not the latest inflation figures or quarterly profit report, that we must focus on if we're to understand the world around us.

What, then, are these fundamentals? Over the next several sections, the authors lay them out one by one. The first is Time with a capital 'T'. The authors fret about what they call the "clash of speeds" – the tendency of some aspects of society to change much more rapidly than others. For example, businesses change at hyperspeed and new markets arise seemingly overnight – too fast for governments to get a grip.

For instance, in 1995, few people in the United States realized that retail transactions over the Internet, so-called "e-commerce," would explode into a multi-billion-dollar industry within five years. As a result, no one sorted out the implications for state value-added taxes. If a consumer in state A buys a book from a company located in state B, which state gets the value-added tax?

The e-commerce companies came up with a novel and profitable answer: neither. And the government, lacking a policy on the matter, didn't challenge that interpretation of law. As a result, the e-commerce retailers gained a major advantage over that of their bricks-and-mortar competitors – and states lost a significant source of tax revenue, which translated to lower spending on education.

For the authors, such situations represent what they call "de-synchronization" – different institutions essentially operating on different time clocks. We see de-synchronization rearing its head in industry, too. Company A releases a product after spending billions in development and marketing. If it produces too many units initially, it risks paying to carry a large inventory. If it produces too few, it risks losing out to competition for lack of product. Budding entrepreneurs take note: The authors rightly claim that "synchronization" has already grown into a huge industry. Top-performing companies synchronize supply and demand through just-in-time manufacturing; they keep it running smoothly through investments in enterprise-resource planning software and services.

Now, to anyone who's familiar in the way that automobile and other manufacturers use just-in-time scheduling, this hardly counts as startling futurology. After all, Toyota pioneered the approach as far back as the 1950s. However, the Tofflers' prediction is that as "de-synchronization" grows, and the profitability of re-synchronization becomes even more obvious, we can expect to see billions more invested in time-coordinating technologies. Having dispensed with Time, the authors turn, in the next section, to Space. In short, because of the digitization of everything, proximity isn't what it used to be. The authors point out that in the 90s, Mexico's trade pact with the United States made it the darling of the global investment community. Investors bet that Mexico would become a kind of North American tiger, experiencing a boom in industry geared to the US market.

In the event, although Mexico did indeed undergo a manufacturing boom, its growth has cooled dramatically in the last several years. Why? Because China, halfway around the world, proved a much more attractive manufacturing site – mainly because wages there are so low. A generation ago, Mexico's proximity to the US might have served it better – the kinds of stuff it might have been exporting would have been bigger and bulkier, making it prohibitively expensive to haul the same things from China. Now, the products whipping across borders tend to be tiny – imagine how many MP3 players or cell phones you can stuff onto a ship from China. In the digital age, the physical footprint of things shrinks – and the price of moving them around drops. The old real estate phrase "location, location, location" may be heading for history's rubbish bin.

Next, the authors turn their attention to what might be called the deepest fundamental of all: Knowledge. They never actually define knowledge, but they do come up with an incisive set of descriptions for this thing they call "tomorrow's oil." The most important is that knowledge is "non-rival." That simply means a given bit of knowledge can be used by an infinite number of people without getting used up.

Think of a first-wave activity: Say, a farmer growing corn in a field. When he plants his seed, no one else can constructively use that land until harvest. Land is a rival asset.

Now think of something second wave – say, a machine designed to package MP3 players as they emerge from the assembly line. That machine, too, is rival: When it's working to package MP3 players, it can't also do something else simultaneously. So the land that dominated first wave production, and the machines that characterized second wave production, were rival assets. Now think of knowledge. If you design a new process for performing some task, it can be used in Singapore without affecting its use in Sao Paulo, or New York, or London.

That factor alone accelerates change, since ideas travel more easily and cheaply than machines, especially given the vast global infrastructure for moving knowledge called the Internet – not for nothing once known as the "Information superhighway."

However, the non-rival nature of information raises security concerns. Strong property laws backed by the odd armed guard have sufficiently protected land and machines from the threat of appropriation by theft. But how do you protect an idea? No armed guard can protect property that exists only in people's brains, or as bits and bytes in cyberspace. Again, would-be entrepreneurs take note: The authors predict that protecting intellectual property will create massive opportunities in the law and software fields.

From there, the authors move away from "deep fundamentals" and into what's probably the book's most interesting concept: "prosuming". Yes, you heard that right. The Tofflers like to invent words to fit their favorite concepts. Prosuming combines producing with consuming. Literally, it means producing something for your own consumption. Prosuming dominated the First Wave period, the authors say: Peasant farmers produced mainly for themselves, and paid the surplus as rent to the landowner. In the Second Wave, prosuming took a dive. Factory workers produced specific products for the mass market – and used their wages to buy products from the mass market.

In the Third Wave, though, prosuming is making a raging comeback. Hobbyist gardeners, knitters, sewers, and cooks are growing their own food, making their own clothes, and preparing restaurant-level meals – not because they have to for economic reasons, as was often the case thirty or forty years ago, but for the pleasure of it. More significantly, companies have learned to cut costs by coaxing consumers into doing work once done by paid employees. When was the last time you found yourself face to face with a bank teller? Most consumers handle the clerical work of banking through their own online accounts – and get their hands on cash by punching codes into an automated cash machine.

According to the Tofflers, that sort of work amounts to a "third job" – and an unpaid one at that. For the Tofflers, much of the Revolutionary Wealth in the process of being created will stem from such carefully manipulated "prosuming" initiatives.

In the rest of this wide-ranging and stimulating book, the Tofflers apply these US-based concepts to Asia and to Europe. They envision Asia ascendant and Europe on the wane – because Asian cultures have been more apt to roll with the Third Wave, while Europeans seem more inclined to swim against it.

Will that prediction pan out? Only time will tell. But this much is predictable: Whenever the Tofflers next choose to release a new book, business leaders will rush to get their hands on it. Like a weather vane, these remarkable futurists help us figure out which way the wind is blowing.

Revolutionary Wealth by Alvin and Heidi Toffler is published in paperback by Currency Books.

That's the end of this episode of Book Insights.